On 12 January 2022, the DIFC Financial Markets Tribunal ("FMT") issued its decision in an appeal brought by Gilles Rollet, a former senior executive officer and licensed director of La Tresorerie Limited ("LT"). The FMT dismissed Mr Rollet's application and affirmed the decision by the Dubai Financial Services Authority ("DFSA") to impose upon him a fine of US$175,000, along with a prohibition and restriction effectively barring him from any future involvement in the provision of financial services in or from the DIFC.
The central facts of the case are well established, having first appeared in an agreed decision notice issued by the DFSA to LT in April 2020. Between 2015 and 2017, LT provided its clients with a physical cash withdrawal service (the "Cash Service"), including through the use of false invoices issued by third party companies, and Mr Rollet's personal bank account. There are no revelations in the FMT accepting that the Cash Service involved serious breaches of law and regulation, nor in its finding that Mr Rollet's knowing involvement in those breaches warranted the sanctions imposed by the DFSA.
Where the FMT's decision becomes interesting for other Authorised Individuals, is in its consideration of the main line of argument put forward in Mr Rollet's defence of the allegation that he was 'knowingly concerned' in LT's breaches; that Mr Rollet had taken reasonable steps to ensure that it was permissible for LT to provide the Cash Service.
Reasonable steps
Mr Rollet argued that he had placed reasonable reliance on LT's compliance function, various external advisers and on a lack of objection from the DFSA itself, in concluding that it was permissible for LT to provide the Cash Service. He contended he could not then be penalised when it subsequently transpired that the information on which he relied was incorrect.
On this occasion, the FMT did not have to decide whether that argument was effective. On the facts, it found that Mr Rollet was both aware of the Cash Service and knew it was wrong. Rather than placing reasonable reliance on outside advice, Mr Rollet had chosen not to ask for it "probably because he knew what the answer would be".
The consideration given by the FMT to each strand of Mr Rollet's argument on reasonable steps does, however, give some indications as to what steps would have been reasonable for him to take in the circumstances. It is these indications, summarised as five key takeaways below, that other Authorised Individuals would do well to consider when seeking comfort regarding potential compliance issues within their own areas of responsibility.
Five key takeaways
1. A high-risk issue is not low priority merely because it relates to a small proportion of activities
Mr Rollet acknowledged what would be considered almost instinctive to any experienced participant in the financial services industry; that dealings in physical cash carry with them a special category of risk and can be used to facilitate serious crime. As part of his contention that it was nevertheless appropriate for him to rely on his senior staff to ensure that all was in order with the Cash Service, Mr Rollet emphasised that physical cash withdrawals were a minor part of LT's business, and the amounts withdrawn were not significant in the context of the business as a whole.
The FMT was unimpressed by the "irresponsible" suggestion that Mr Rollet had less reason to concern himself with the Cash Service because the volume and value of transactions were comparatively small. The contention was not helped by the fact that the amounts of physical cash involved were not insignificant, totalling over US$7 million across the relevant period.
The clear takeaway from the FMT's reaction to this line of argument is that an Authorised Individual should consider the risks associated with an issue, and not merely the relative size of the business area or service concerned, when determining its priority. As the FMT succinctly puts that message, a "small but extremely vulnerable aspect of the business is just what the SEO should be watching carefully."
2. A little knowledge is enough to be concerned
Mr Rollet admitted he was aware that third party companies were involved in the Cash Service, but denied any knowledge that the process involved those companies issuing false invoices.
The FMT was unconvinced, finding that Mr Rollet either knew, or made a deliberate choice not to know, the full details of the process. The FMT did, however, give the following insight as to what its view would have been, had it accepted Mr Rollet's position that he was genuinely unaware of the more troubling details:
It would be odd and wrong for an SEO to know that much but not go on and find out more about such an unusual method of obtaining cash from the accounts of clients.
We read that as an indication the FMT would be unlikely to consider an Authorised Individual has taken reasonable steps, where he or she has enough information to be put on notice that something is unusual or amiss but has chosen not to make further enquiries as a result.
3. Reliance on internal staff should be appropriate to the size of the organisation
Mr Rollet argued that the compliance team at LT was aware of the Cash Service, "effectively endorsed" it and assured him that it was in order. The FMT, noting there was no written record of his requesting, or being given that assurance, ultimately found that he had not placed reliance on his internal team.
If, on the facts, Mr Rollet was found to have relied on his internal team, his contention that it was reasonable for him to do so would still have faced significant hurdles. The FMT recognised that Mr Rollet was in a senior position and "entitled to rely to some degree on his subordinates", but indicated that the extent of the reliance should reflect the context that LT was "a small concern not a large institution", remarking that:
Mr Rollet spoke in terms that would have been appropriate to the head of a worldwide bank… LT had 12 staff situated in one open plan room with a couple of meeting rooms.
The FMT did not appear to find it convincing to suggest that the SEO of such a small organisation could be sufficiently far removed from the details of an 'on the ground' activity like the Cash Service, to justify relying entirely on his subordinates to identify and analyse any issues with its propriety.
It seems, therefore, that an SEO whose role is "inevitably 'hands on'", is less able to make a credible claim that he or she cannot be expected to have personal oversight of all the significant aspects of a firm's operations.
4. Reliance on external advisers should be based on specific advice and evidenced in writing
A risk assessment of LT's business, carried out by the DFSA in early 2015, had previously identified deficiencies unrelated to the Cash Service, in LT's compliance and anti-money laundering framework. LT appointed PwC as external consultants, to assist it in dealing with the resulting risk mitigation programme and other follow-on work. Mr Rollet made much of PwC's involvement, claiming they were aware of the Cash Service and did not raise any concerns, which then gave Mr Rollet comfort that it was an appropriate service for LT to provide.
The FMT found that PwC were plainly not aware of the Cash Service, as if they had been there would have been a record to that end. Importantly, the FMT went on to say that, even if PwC were aware of the Cash Service and had not raised any objection, "even this would have been irrelevant unless they had considered and approved the entire scheme."
Other Authorised Individuals can take this as an indication that, if they intend to rely on external advisers to give them comfort regarding an issue, they should ensure there is a clear record of the adviser considering the full scope of the issue and giving a positive confirmation that it is not problematic.
5. Lack of objection from the regulator is not approval
The final key point we take from the FMT's decision concerns the extent to which an Authorised Individual, or indeed a firm, can rely on a lack of objection from the regulator itself as a confirmation that a particular activity is permissible.
Mr Rollet argued he took comfort from the fact that, in the course of the remediation efforts that followed its 2015 risk assessment of LT's business, the DFSA had been provided with materials which made it clear that LT provided the Cash Service and did not raise any objections. Again, the FMT's findings of fact undermined that argument, concluding that the materials provided to the DFSA did not even begin to amount to disclosure of the Cash Service.
The FMT went beyond those findings of fact to make it clear that the position would have been the same, even if the materials provided had disclosed the existence of the Cash Service. There is little interpretation required to extract the lesson from the FMT's following words:
A firm cannot, by simply sending a document to the regulator containing reference to a product, expect or assume that absence of comment means approval… An applicant cannot rely on disclosure to the DFSA unless the issue has been fully and fairly disclosed to the regulator and actively approved.
Conclusion
The extent to which the FMT will be persuaded that an allegation of 'knowing concern' can be defended by an individual having taken reasonable steps, will not ultimately become clear until a case is heard where sufficient facts can be established to support that argument. For now, however, the FMT has given us some useful indications as to what reasonable steps may look like, if only by discussing actions that fall short of the mark.